2017 (4) TMI 179 - AT - Income Tax

Additions under section 69C - additions solely based on the documents found during the course of survey - Held that - Merely based on the statement, which was recorded during the course of survey, such additions cannot be made unless such addition is supported by some corroborative evidence. Where the assessee has been able to explain the discrepancy found during the course of survey with regard to purchase price paid for distribution rights, additions cannot be made solely on the basis of statement made by the assessee during the course of survey. In this case, the assessee during the course of survey, in the statement recorded, categorically stated that he has paid ₹1,01,29,747/- , but not ₹ 1,85,00,000/-. The Assessing Officer without any evidence to suggest that the assessee has paid on money in cash over and above the consideration recorded in the books of account, which was further supported by the deposition of producer in the form of letter, wherein he had confirmed receipt of ₹ 1,01,29,747/- additions cannot be made under section 69C of the Act, as unexplained expenditure, towards difference between purchase price found in loose slips and amount recorded in books of account. The Commissioner of Income Tax (Appeals), after considering the relevant facts, has rightly deleted the additions - Decided in favour of assessee

Issues Involved:
1. Determination of the actual purchase price of distribution rights for the film "Allaripidugu."
2. Validity of additions made under section 69C of the Income Tax Act, 1961, as unexplained expenditure.
3. Credibility of evidence found during the survey under section 133A.
4. Justification for the deletion of additions by the Commissioner of Income Tax (Appeals).

Detailed Analysis:

1. Determination of the Actual Purchase Price of Distribution Rights:
The primary issue revolves around the actual purchase price of the distribution rights for the film "Allaripidugu" for Krishna and Guntur districts. The assessee declared a purchase price of ?1,01,29,747/- in his books of account. However, during a survey operation under section 133A of the Income Tax Act, 1961, incriminating documents suggested a purchase price of ?1,85,00,000/-. The assessee contended that the final agreed price was ?1,01,29,747/-, supported by a letter from the producer confirming this amount.

2. Validity of Additions Made Under Section 69C:
The Assessing Officer (AO) made additions of ?83,70,253/- as unexplained expenditure under section 69C, based on the difference between the declared purchase price and the amount suggested by the survey documents. The AO relied on loose slips and agreements indicating a higher purchase price. The Commissioner of Income Tax (Appeals) found that the AO did not provide sufficient evidence to justify the on-money payment and directed the deletion of the additions.

3. Credibility of Evidence Found During the Survey:
The AO's additions were based on documents found during the survey, including loose slips and a letter addressed to a third party (Sri V. Rama Krishna) indicating a purchase price of ?1,85,00,000/-. The assessee argued that these documents were not related to the actual transaction and were only draft agreements. The Commissioner of Income Tax (Appeals) and the Tribunal found that these documents did not conclusively establish the payment of on-money and were not sufficient to support the AO's additions.

4. Justification for the Deletion of Additions by the Commissioner of Income Tax (Appeals):
The Commissioner of Income Tax (Appeals) held that the AO failed to establish any financial connections or transactions between the third party and the assessee or the producer. The Tribunal upheld this view, stating that the AO relied on loose slips without corroborative evidence. The Tribunal emphasized that additions cannot be made solely based on statements recorded during the survey unless supported by substantial evidence.

Conclusion:
The Tribunal concluded that the AO's additions under section 69C were not justified due to the lack of credible evidence. The Commissioner of Income Tax (Appeals) rightly deleted the additions, and the Tribunal upheld this decision. Consequently, the appeal filed by the Revenue and the cross-objection filed by the assessee were dismissed. The judgment underscores the importance of corroborative evidence in making additions under section 69C and the need for a clear connection between the evidence and the assessee’s transactions.

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